Tata Motors in the Automobile Industry - Essay Example

Tata Motors number: Word count: Introduction Tata Motors refers to an Indian multinational automotive manufacturer with it’s headquarter located in Mumbai, Maharashtra, India. The company is a subsidiary of the Tata Group. As an enterprise under India’s largest multi-holding company, Tata Motors has been able to grow significantly for the past 70 years since its inception back in 1945 (Lipschultz, 2008). To date, Tata Motors enjoys being India’s leading automobile manufacturer whereby it is increasing its presence in Europe, South East Asia, Africa, Australia, and the Middle East (Datamonitor, 2000). However, there are issues of uncertainty that affects the automobile industry, such as economic downtimes that reshapes the entire structure of the sector (International Labor Organization, 2010). This presentation thus analyses these uncertainties in relation to how it affects Tata Motors. Uncertainty in the automobile industry The automobile industry is subject to consider by many as being the most profitable industries. On the contrary, the industry has been able to experience its own highs and lows. For example, the recent economic downturn experienced in 2009 led to the major economic downturn in the industry (Economic Outlook no. 1210, 2014). Other factors causing uncertainty in this industry are as listed below; Market competition Oligopolistic market Changes on suppliers Changes in demand Price Elasticity of Demand and Supply PESTLE Analysis of the Industry Conducting PESTLE analysis is a popular and most useful tool to help in understanding on the reductions or growth through the market. The understanding may include the position of the potential that the business has in the market. POLITICAL Legislation Environment Company Cars Competition Taxes and Duty Subsidies ECONOMIC Excess Capacity Economies of Scale Diversification Mergers and strategic alliances SOCIAL Environment Car Culture Fashions and taste Redundancies TECHNOLOGICAL E-Commerce Safety Plant efficiency Gizmos LEGAL Taxes Licenses Levies ENVIRONMENT Globalization Quotas Labour Uncertainty Matrix in Automobile Industry The automobile industry is again under the period of uproar. Crises of 2008/09 are far from over, and currently, the industry may probably be marking the start of the second revolution (UNIDO, 2010). These are the three key uncertainties facing the industry; 1. What might the automobile industry of tomorrow look like? 1.1 The initiatives of moving the industry towards the production of carbon-free vehicles 1.1.1 The radical uncertainties in relation to the strategic choices 1.1.2 Challenges of inventing new sales models (Global Economics, 2015) 1.2 Challenges of selling new car models in the market 2. How is it possible to achieve the recomposition of the industrial architecture? 3. Uncertainty in the geography of European automobile industry 3.1 The displacement of the global automotive business towards Asia and China 3.2 The eastwards move of the European production A scenario Cross in India’s Automobile Industry In an overall outlook, India’s automotive industry is in a better shape than compared to what it was five years ago, with the growth progress estimated to continue over the coming years. Four key challenges (best and worst) need to address in determining the future profitability (McKinsey & Company, 2013). Two worst-case scenarios; 1) Complexity and cost pressure – the future of the industry predicts that there will an extra platform for sharing and more modular systems. More regulatory pressure will occur and prices will be flat (Freyssenet & Groupe, 2009). 2) Diverging markets – the auto industry should adapt to the changing regional and the segment patterns of both supply and demand patterns. There is a threat from the emerging Chinese after sales market that offers new growth opportunities (Giachetti & Lampel, 2010). Two best-case scenarios; 1) Digital demands – consumers will require more connectivity. They will be focusing on active safety and ease of use. Consumers will be using digital sources in making decisions on purchasing (Lee & Berente, 2012). 2) Shifting industry landscape – suppliers will be adding more value to the alternative technologies and support innovative solutions that offer active safety (Sahay et al., 2011). Indian auto industry should restructure and adjust on its capacity for matching demand and competition from the emerging market. Explanation of Table 1: EBIDT Ratio The table provides ratio that is subject to use in analyzing the profitability of the company through taking the company’s revenue figures followed by accompanying them with the total earnings of the company. The ratio thus helps in determining on the percentage of revenue left over after the company has finished paying all of its operating expenses. Explanation on table 2: EBIDT Ratio of Tata Motors The ratio in this table assumes on the great importance of moneylenders and financers in that it reveals on the cash availability of the firm so that it may pay the financiers their interests. Description of worst-case scenario Complexity and cost pressure will is worst-case scenario as it makes it hard to introduce new products in the market. With regulatory pressure expected to rise, it will make it unbearable for companies that produce in large quantities. Cost pressure will lead to price wars that will thus reduce on the profits. Description of best-case scenario The best-case scenario will occur if there will be digital demands in the market. It will be advantageous for Tata Motors as the company is trying to develop mechanisms enhance digital services in its auto products. In this scenario, Tata will enjoy the market privilege by reaching the group of customers who might prefer digitized vehicles (Wäldchen, 2014). The pricing strategy Tata Motors follows an efficient manufacturing process that concentrates on effective utilization of the available resources. This helps to price their automobiles at a comparatively lower price with respect to the competitors, even maintaining, and the quality of their vehicles at a higher level. The company always intends to establish their manufacturing units in the regions offering the benefits of easy availability of raw materials and labors (Tata Motors, 2015). The competitive strategy Tata Motors have always followed the strategy of providing differentiated products to the customers in order to maintain brand uniqueness as compared to that of its competitors. The company always aims at creating value for its customers by manufacturing automobiles consisting of higher features but at a reasonable price (Research and Markets, 2012). Recommendations for the worst-case scenario Following the expected outcome of complexity and cost pressure, there is need of formulating adequate measures to avoid its related impacts. Tata Motors needs to adopt adequate pricing and competitive strategies. In this regard, the Tata should expand on its cost leadership strategies. This is possible to achieve through following efficient manufacturing strategies that concentrate on the effective utilization of the resources available. To counter the threat of diverging market, Tata Motors should adapt to the changing regional and the segment patterns of both supply and demand patterns. Recommendations for the best-case scenario Following the expected outcome of digital demands, Tata Motors needs to speed up its strategies in differentiation. In differentiation, the company has the potential of providing differentiated products to its customers. The outcome will ensure that there is uniqueness to the Tata products as compared to the products of its competitors. On the matter pertaining to the shift of industry landscape, Tata Motors should speed up on its innovative and efficiency patterns through the production process. The outcome will enhance reliability and maximum safety through the entire vehicle products it manufactures. Conclusion Through the entire paper, it is apparent the automotive industry is changing a lot. The structures of the industry together with other driving forces that prevail impose some considerable influence towards the performance of Tata Company. Taking good measures to counter these issues will help in preventing avoidable problems facing the auto industry. Tata Motors will significant benefit from these measures in the same capacity. By following these measures, Tata Motors will be able to sustain and compete in the auto industry effectively. Bibliography Datamonitor (Firm)., 2000. Tata Motors Limited. New York, NY: Datamonitor. Economic Outlook no. 1210, 2014. The Global Automotive Market Back On Four Wheels. Special Report, pp. 1-22. Freyssenet, M., & Groupe détudes et de recherches permanent sur lindustrie et les salariés de lautomobile., 2009. The second automobile revolution: Trajectories of the world carmakers in the 21st century. Basingstoke: Palgrave Macmillan. Giachetti, C., & Lampel, J., 2010. Keeping both eyes on the competition: Strategic adjustment to multiple targets in the UK mobile phone industry. Strategic Organization, 8, 4, 347-376. Global Economics, 2015. Central Canada Will Drive Canadian Auto Sales To Record Highs. Global Auto Report, pp. 1-8. International Labor Organization, 2010. Automotive Industry: Trends and reflections. International Labor Office, pp. 1-197. Lee, J., & Berente, N., 2012. Digital Innovation and the Division of Innovative Labor: Digital Controls in the Automotive Industry. Organization Science, 23, 5, 1428-1447. Lipschultz, J. T. S., 2008. A Microeconomic Analysis of the Full-Size Automobile Market. Economics & Business Journal: Inquiries & Perspectives, Vol.1, No. 1, pp. 152-163. McKinsey & Company, Inc., 2013. The Road To 2020 And Beyond: What’s Driving The Global Automotive Industry?. Advanced Industries, pp. 3-21. Research and Markets, 2012. Tata Motors Limited - Strategies, Financial Outlook and Competitive Benchmark Analysis. Article. [Online] Available at: http://www.researchandmarkets.com/reports/2254240/tata_motors_limited_strategies_financial [Accessed February 24, 2015]. Sahay, B. S., Sharma, V. S., & Sardana, G. D., 2011. Supply Chain Management Practices of Indian Automobile Industry. International Journal of Information Systems and Supply Chain Management (ijisscm), 4, 3, 60-78. Tata Motors, 2015. Tata Motors – FY04 Performance. Leading the Future. [Online] Available at: http://www.tatamotors.com/investors/pdf/FY04_Presentation.pdf [Accessed February 24, 2015]. UNIDO, 2010. The Global Financial Crisis and the Developing World: Impact on and Implications for the Manufacturing Sector. Development Policy and Strategic Research Branch, pp. 1-51. Wäldchen, D., 2014. Towards a new order in the global automotive industry. Hamburg: Diplomica Verlag. Read More